ISLE OF WIGHT NHS PCT

BOARD MEETING WEDNESDAY 3 NOVEMBER 2010

WHITE PAPER UPDATE AND EMERGING TRANSITION PROGRAMME

Introduction

This paper provides an update on the White Paper, Equity and Excellence: Liberating the NHS and the
emerging transition programme for NHS IoW to achieve it. The paper requests the Board to endorse
the proposed direction and outline timescales.

Responses to the White Paper

The Trust submitted responses to the main White Paper, ‘Equity and Excellence: Liberating the NHS’
published on Monday 12th July 2010, and the 4 supporting consultation documents earlier in October.
These were circulated to all Board members, have been made available to staff via the intranet, and to
our principal external stakeholders. They are available at: http://www.iow.nhs.uk/index.asp?record=1412
on our website. Acknowledgements were received to our responses from DH. The DH have also
published two further consultation documents, one on Information and the other on Choice, for which
the consultation deadline is January. Responses will also be submitted to those documents.

Context

Uniquely for England the NHS Isle of Wight (NHS IOW) is a single NHS provider and commissioning
organisation supporting the contained health economy for the largest off-shore Island in England and
Wales. As such it encompasses Mental Health, Acute Care (including A&E and Maternity services),
Prison Health, Ambulance Service, Commissioning, Primary Care, Community Services, public health
delivery and all the associated corporate functions servicing a resident population of c140,000. There are
no road routes to other NHS trusts, off-island transfer is dependent on weather and time of day, and the
population can double through visitor numbers during peak summer periods. The Island is considered far
enough in travelling time from mainland hospitals to require acute emergency care, maternity, NICU and
other key services to be provided locally. Against this backdrop NHS Isle of Wight conducts a constant
programme to maintain sustainability and resilience whilst reducing costs.

Key drivers
The Island’s population of c140,000 is less than half of that needed to support a District General Hospital
(DGH) providing a range of services at cost-efficient levels. Patient volumes for some services are too
low to cover fixed overheads of staffing and estate thereby generating an ‘Island Premium’ to costs and
necessitating unconventional models of working. In principle the Island’s approach has been to integrate
infrastructure services (such as finance and information) and share management support to effectively
subsidise those services which would otherwise fail to deliver value for money.
Sustainability of providers is a key challenge. NHS Isle of Wight does not have opportunities to develop
its customer base as many mainland providers can and has to manage the market by commissioning
services competitively but without destabilising the fragile provider base to an extent which threatens
resilience of the island’s health system.

This organisational form has served the island health economy well since 2006, successfully delivering
financial balance (on average achieving savings of between £8m and £12m per annum), facilitating
innovation and achieving national targets for service delivery. In doing so it has successfully ‘bucked
national trends’ and moved ahead of the curve on performance in a number of key areas. It is of
particular note that it has numbers of older people and a demographic profile that will be typical for the
rest of England by 2048, along with an exceptionally large prison population. Evidence of its exemplary
performance is that NHS IoW is the second best in the country for keeping people out of hospital and has
very low referral rates by comparison with the rest of England.

Our Current Arrangements

Islanders are passionate about their health service (as reconfiguration consultations in 2003/4 and
2005/06 demonstrated) and have historically been adamant about retaining local control, in line with the
White Paper, with an Island based health organisation. The Island economy is heavily dependent on a
reliable, comprehensive health service to support both its tourist industry and provide employment.

The original Transforming Community Services (TCS) strategy started from the configuration of a “typical”
PCT . It was recognised that NHS IOW was more complex and that separating provision in the way TCS
envisaged would create more overheads than the Island’s health system could afford because of its
geography and critical mass. The SHA and DH supported the proposal for NHS IOW to have Direct
Provider Organisation (DPO) status which was confirmed in March 2010.

The White Paper

The new arrangements require the separation of provider services from commissioning by April 2011.
Currently there is internal business separation rather than organisational separation and the latter is
particularly difficult for NHS Isle of Wight to achieve in this timeframe because:

- there is no other NHS organisation on the Island. The only options are to place provider services
into appropriate mainland providers and this is likely to be unacceptable to local stakeholders at
such short notice;

- unlike mainland PCTs, the elements to be divested would include acute (with maternity),
ambulance, mental health, community and prison healthcare into a mainland provider
environment already in flux and unlikely to be willing to take on the complexity of services with
critical mass issues whilst seeking to become Foundation Trusts themselves;

- it creates high risk & viability issues for the IoW Provider services during the crucial transitional
period before the new commissioning and regulatory environment has been created; and

- organisational change of this potential magnitude in provider services is a distraction at a time

when needing to deliver the already agreed national QIPP programme of savings.

How the White Paper could be delivered for the IoW was discussed with the South Central Strategic
Health Authority (SHA) and the Department of Health (DH) at a meeting with representatives from both
organisations on 4th October 2010, and a letter was received from DH on 13 October outlining a way
forward:

1. NHS IoW and SHA would encourage the emerging GP Commissioning Consortium to be a
regional pathfinder – demonstrating a firm commitment to establishing a programme of
ongoing separation of commissioning from provision.

2. The SHA would lead an option appraisal for the ultimate provider form. This option appraisal
would be completed by the end of financial year 2010/11 and would address issues of
delivering healthcare within the islands context & the associated financial challenges.

3. Accepted in principle that provider services will remain within NHS IoW until April 2013.
However in the meantime, the SHA would assure itself that NHS IoW has achieved business
separation of provision, is delivering a programme of work towards full separation by this date
which would include the separation of ledgers.

It is expected these principles will be confirmed through NHS IoW and SHA Boards in November so the
DH can confirm approval for NHS IoW to maintain its integrated organisation with business
separation for the transitional period through to April 2013 when full organisational separation will be
achieved. A Provider will be determined via the FT pipeline, commissioning within a GP Commissioning
Consortium and the National Commissioning Board, and the public health function will be progressed
according to the national timetable. At this point the NHS IoW will be abolished.

In terms of commissioning NHS IoW are supporting a group of local GPs to develop proposals for a
single GP Commissioning Consortium (GPC) for the Island. A phased introduction of GP
commissioning starts from April 2011, with full GPC in place from April 2012 and full separation from
April 2013 in accordance with the White paper timetable. The GPC has been granted Regional
Pathfinder status (meeting one of the DH requirements outlined above) and will be leading on the long
term conditions element of the QIPP programme.

In terms of provision the preferred option for a ‘stand alone’ local provider Foundation Trust needs to
be developed. In line with previous experience it is also recognised that for viability and service benefits
NHS IoW could consider increasing critical mass by including social care in the new organisation. This
brings the potential value of this option for an island based FT towards £200 million but this is subject
to the Options Appraisal and further discussions with the Isle of Wight Council whilst it develops its
future strategy.

In terms of Public Health preparatory work is underway to ensure that the existing public health
function remains viable until the Public Health White Paper, expected in December 2010, confirms
where elements of the service will need to be transferred. In conjunction with the SHA, other PCTs in
South Central, and local authorities a local transition plan is being finalised for delivering the White
Paper requirements of moving Public Health to the Local Authority, appropriate provider organisation(s)
and a new National Public Health Organisation

To oversee the transitional programme to deliver the above the NHS IoW Executive Directors have
established weekly meetings to set up the programmes of work for each area and ensure delivery.
These meetings report to a monthly System Reform Board that reports to the Board. As these
structures and their various supporting projects develop the Board will therefore be updated regularly
as part of the programme governance arrangements. Discussions are also taking place with partner
organisations and stakeholders including IW Council and emerging GPC to develop wider system
transition arrangements and governance structures which it is hoped can be used as pre-cursor
arrangements for establishing the local Health and Wellbeing Board.

Issues to be addressed for the Provider to become an FT

To achieve Foundation Trust status a provider must be a viable business entity in its own right. For St
Mary’s Hospital this means that it cannot rely on cross-subsidy across the breadth of the NHS
organisation which it currently benefits from. So key to the success of delivering the White Paper will
be ensuring the new provider FT has a cost base that is as efficient as possible and that pricing
arrangements and/or Regulator determined and supported tariffs are in place for services that are sub-
critical mass (e.g. emergency, maternity, NICU etc).

There is provision for this within the White Paper:-

‘In exceptional circumstances it may be necessary to modify the tariff price to sustain the provision of
services. In rare cases a provider might unavoidably have higher costs than other organisations, for
example because it operates in a rural location and provides key services to a small, isolated
population.’
To justify this approach NHS IoW will need to be able to demonstrate that the proposed organisation is
the optimum that can be achieved taking account of geographic factors, population health needs and
community opinion. The options appraisal has therefore to cover a spectrum of service provision from a
minimum sized provider base through to a maximum sized provider base, considering options in
between and ‘goal seeking’ the optimum solution
QIPP (The National Programme of achieving £20bn of savings in the NHS by 2014) is making explicit
where economies of scale thresholds lie as NHS IoW seeks to increase productivity and realise
provider savings. There are still savings that can and have to be made but some of the problem is
beyond productivity alone and is structural in nature. As more savings are made the provider starts to
hit the threshold of critical mass for viable service delivery in more clinical areas and, at this point, for
every £ the Commissioner believes can be saved the Provider can only realise a smaller proportion
because only the variable costs can be saved.
Some of the provider deficit can be overcome by getting better at Counting & Coding but this is likely
to be by no more than £1m or £2m.
An emerging issue is Estates and infrastructure where initial investigation suggests that there are
unavoidable fixed and semi-variable costs such that, if the average national tariff were to be applied, a
deficit of c£5m would follow.
Essential services such as A&E and Maternity have been recognised as requiring subsidy, collectively
known as the “Island Premium” and this is currently c£5m but as more service areas approach their
critical mass threshold as the total cost base reduces this figure can be expected to rise.
An example is Ambulance Services where the introduction of triage can reduce ambulance call outs by
25% but the total staffing and number of ambulances can’t be reduced because it would take the
service below the minimum safe level. At the reduced volumes the national tariff won’t cover the costs
of the service so it will need subsidy.
Corporate overheads also have fixed and semi variable costs beyond that covered by the Av.
National tariff. In order to tackle this work has started to establish service level agreements (SLAs) that
will define the scale and scope of support services. Once these are available each area will need be
reviewed to understand the benefit of working more closely with the local Council and other NHS and
public sector partners to expand shared services and consider potential outsourcing options

What is the Options Appraisal to achieve?

The Options appraisal is to:

- Establish the optimum configuration of services for the Isle of Wight that minimises subsidy
whilst providing safety and quality that is the same as those of similar communities on the
mainland
- Confirm by the end March 2011 the baseline configuration for the new FT organisation, its
anticipated financial envelope including the scale of cost savings and subsidy required to
achieve FT status.
- Engage stakeholders in the development of the options appraisal to ensure there is
understanding, agreement and community ownership for the preferred option
- Provide the basis for early public engagement
- Provide the basis for ongoing discussions with Monitor regarding the future payment regime
- Provide a basis for the future Commissioner to determine a commissioning strategy.

Who will be involved in the Options Appraisal?

The Department of Health have asked the SHA to oversee the Options Appraisal. It will be managed
jointly between the SHA and NHS IoW and the funding source is currently under discussion with the
SHA.

It is intended to engage Primary, Secondary & Social Care Clinicians, Managers and practitioners
within Option Appraisal design groups within a programme and governance structure that will be
designed during November. An overarching Group of stakeholders and a wider engagement process
will be included that will probably take a similar form to the award winning process used by NHS IoW
called Decision Conferencing which engages representative groups and the public in the development
of IoW services. Key to the whole process will be the engagement and ownership of Clinicians, Staff,
the community and the future Commissioners who are the GPs within the GPC which should exist from
around the time the main body of option appraisal work will be underway from December onwards.
How and when will the Options Appraisal be undertaken?

It will be undertaken between now and end of March 2011. Project resources will be drawn from the
Trust’s existing teams (financial and activity support and modelling with support to the facilitation of
clinical groups and programme management). An external senior Financial Advisor with Foundation
Trust experience will be required as these skills do not exist currently within NHS IoW and the SHA are
helping identify a suitable individual or small team. A programme of this scale and pace isn’t possible
within existing NHS IoW and SHA resources therefore external Programme and Facilitation Leadership
(with experience of undertaking system redesign across such a wide variety of services, in these
timescales, and that can bring national profile where possible) is being procured. The tender for this
was issued on 28th October and it is expected that a contract will be awarded and team mobilised
before the end of November. Resources will also be drawn from within existing departments of NHS
IoW, SHA & Council organisations and functions (as required), and the emerging GPC to form the
redesign groups.

Communication

All members of the above mentioned groups will have a responsibility to communicate progress in their
respective areas and to their respective ‘constituencies’. The design of the overall options appraisal
structure and governance will include producing regular progress reports. This process is intended to
be as inclusive as possible and communication vital to its successful outcome.

Options

The Options need to be developed during the early phase of the Option Appraisal Process but an
outline is provided within the supporting slide pack and reproduced below. It is vital that the options
appraisal identifies the services that generate the need for subsidy so these can be reviewed in full
detail and to ensure there is absolute transparency for discussions regarding future payment
mechanisms and commissioning options.

Overview of Strategy
Option appraisal

The Options need to be developed but will need to include:

Option 1 - the minimal island health solution based on a clinical view of what could be
transported to the mainland
Option 2 - if the above excludes A&E then this option will be minimal with A&E,
Maternity, etc.
Option 3 - the maximum organisation for health with everything in it
Option 4 - as 3 but with social care provision added

The minimal options will need to include the cost of robust transport and logistic
arrangements to demonstrate the relationship between this and the costs of local
provision.
There will need to be a financial model that facilitates adding and subtracting services to
help ‘goal seek’ the optimum solution.
It is seen key to identify high cost services that generate the need for subsidy so it is
absolutely transparent where these are needed and to support discussions regarding
future payment mechanisms

17

Once the service configuration option appraisal is completed the next stage will focus on organisational
configuration – what is feasible and viable for an island-based provider to provide and from which a
Commissioning Strategy can be developed with the emerging GPC.
Preferred Option selection criteria

In establishing a preferred option the criteria and weighting will need to be confirmed during the Options
Appraisal process but is likely to include:

- Service quality, patient safety and access

- Resilience of services for the island
- Affordability
- Sustainability (clinical, financial, system & organisations)
- Stakeholder agreement
- Community acceptability
- Achievability

Business Separation Audit

To maximise internal business separation during the transition period until full organisation separation
in April 2013, NHS IOW is undertaking a procurement process to identify an external auditor with
experience of applying the DH checklist. It is expected this auditor will be in place before the end of
November and a plan for further action agreed by end of December.

Next Steps

The Board are asked to confirm agreement to pursue the programme of work highlighted above and
endorse the proposed direction and outline timescales including:

– Proceeding with confirming to the SHA a willingness to manage the transitional period
outlined and to pursue a phased business separation followed by organisation separation
of Commissioner, Provider and Public Health as per SHA and DH discussions.
– To continue with the Integrated Organisation during this transitional period through to April
2013
– To the principle of proceeding with the Options Appraisal

Kevin Flynn
Chief Executive
NHS IoW
1st November 2010